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View: Rupee to stay subdued amid weak economic outlook

Participants will be keeping an eye on the WEF that could provide trigger to currencies.

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Last Updated: Jan 23, 2020, 02.59 PM IST
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The euro continued to consolidate in the range of 1.10 to 1.12 against the US dollar for the last few weeks following lack of cues from euro zone.
By Gaurang Somaiyaa

Rupee in the last couple of sessions came under pressure following weakness in domestic equities and as the dollar strengthened against its major crosses. On the domestic front, inflation rose to 7.35 per cent compared to the previous month following an uptick in food prices. Higher inflation has trimmed expectations of further rate cuts by RBI.

The next RBI policy meeting is scheduled in the first week of February. Market participants will be keeping an eye on the World Economic Forum that could provide trigger to currencies. We expect that momentum for the rupee could remain weak and could quote in the range of 70.70 and 71.50 (Spot).

The euro continued to consolidate in the range of 1.10 to 1.12 against the US dollar for the last few weeks following lack of cues from euro zone. Last week data showed industrial production rose 0.2 per cent in November compared with contraction in the previous month, which kept losses limited in the currency. On the other hand, inflation remained unchanged in December compared with the previous month. This week from euro zone, participants will be keeping an eye on the ECB policy statement; expectation is that the central bank could hold rates unchanged but provide cues on further easing. We expect that broad strength in the dollar is likely to keep to the euro weighed down and for the week EUR/USD should quote in the range of 1.10 to 1.12.

Pound is steadily coming under pressure following weaker-than-expected economic numbers that were released from the UK. Data showed that the UK’s economy contracted in November compared with growth of 0.1 per cent in the previous month. At the same time, inflation also grew at a slower pace of 1.3 per cent in December compared with 1.5 per cent in the previous month. British inflation sank unexpectedly to more than a three-year low in December as hotels slashed prices, ramping up expectations that the Bank of England will cut interest rates as soon as this month. Market participants will now be keeping an eye on employment and preliminary manufacturing and services PMI number to gauge a view for the currency. Better-than-expected economic numbers could support losses for the currency.

(Gaurang Somaiyaa, Forex & Bullion Analyst at Motilal Oswal Financial Services)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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